Pearson1e ch14 appendix_14_1

Appendix 14.1
PERT and PERT simulation
PERT—PROGRAM EVALUATION AND REVIEW TECHNIQUE
In 1958 the Special Office of the Navy and the Booze, Allen and Hamilton consulting firm developed
PERT (program evaluation and review technique) to schedule the more than 3300 contractors of the
Polaris submarine project and to cover uncertainty of activity time estimates.
PERT is almost identical to the critical path method (CPM) technique except it assumes each
activity duration has a range that follows a statistical distribution. PERT uses three time estimates
for each activity. Basically, this means each activity duration can range from an optimistic time to a
pessimistic time, and a weighted average can be computed for each activity. Because project activities
usually represent work, and because work tends to stay behind once it gets behind, the PERT
developers chose an approximation of the beta distribution to represent activity durations. This
distribution is known to be flexible and can accommodate empirical data that do not follow a normal
distribution. The activity durations can be skewed more toward the high or low end of the data
range. Figure A14.1A depicts a beta distribution for activity durations that is skewed toward the
right and is representative of work that tends to stay late once it is behind. The distribution for the
project duration is represented by a normal (symmetrical) distribution shown in Figure A14.1B. The
project distribution represents the sum of the weighted averages of the activities on the critical
path(s).
FIGURE A14.1 Activity and project frequency distributions
Knowing the weighted average and variances for each activity allows the project planner to
compute the probability of meeting different project durations. Follow the steps described in the
hypothetical example given next. (The jargon is difficult for those not familiar with statistics, but the
process is relatively simple after working through a couple of examples.)
The weighted average activity time is computed by the following formula:
6
4 bma
te
++
= (14.1)
where:
te = weighted average activity time
a = optimistic activity time (1 chance in 100 of completing the activity earlier under normal
Appendix t/a Project Management in Practice by N Pearson, EW Larson, CF Gray
Copyright ©2013 McGraw-Hill Education (Australia) Pty Ltd Page 1

conditions)
b = pessimistic activity time (1 chance in 100 of completing the activity later under normal
conditions)
m = most likely activity time.
When the three time estimates have been specified, this equation is used to compute the
weighted average duration for each activity. The average (deterministic) value is placed on the
project network as in the CPM method and the early, late, slack and project completion times are
computed as they are in the CPM method.
The variability in the activity time estimates is approximated by the following equations:
Equation 14.2 represents the standard deviation for the activity. Equation 14.3 represents the
standard deviation for the project. Note the standard deviation of the activity is squared in this
equation; this is also called variance. This sum includes only activities on the critical path(s) or path
being reviewed.





 −
=
6
ab
etσ (14.2)
2
eE tT σσ Σ= (14.3)
Finally, the average project duration (TE) is the sum of all the average activity times along the
critical path (sum of te), and it follows a normal distribution.
Knowing the average project duration and the variances of activities allows the probability of
completing the project (or segment of the project) by a specific time to be computed using standard
statistical tables. The equation below (Equation 14.4) is used to compute the ‘Z’ value found in
statistical tables (Z = number of standard deviations from the mean), which, in turn, tells the
probability of completing the project in the time specified.
2
et
ES TT
Z
σΣ
−
=
(14.4)
where:
TE = critical path duration
TS = scheduled project duration
Z = probability (of meeting scheduled duration) found in statistical Table A14.2
A hypothetical example using the PERT technique
The activity times and variances are given in Table A14.1. The project network is presented in Figure
A14.2. This figure shows the project network as AOA and AON. The AON network is presented as a
reminder that PERT can use AON networks as well as AOA.

TABLE A14.1 Activity times and variances
FIGURE A14.2 Hypothetical network
The expected project duration (TE) is 64 time units; the critical path is 1-2-3-5-6. With this
information, the probability of completing the project by a specific date can easily be computed using
standard statistical methods. For example, what is the probability the project will be completed
before a scheduled time (TS) of 67? The normal curve for the project would appear as shown in
Figure A14.3.
Using the formula for the Z value, the probability can be computed as follows:

69.0
50.0
36
3
11925
6467
2
=
+=
+
=
+++
−
=
Σ
−
=
P
TT
Z
et
ES
σ
FIGURE A14.3 Possible project durations
Reading from Table A14.2, a Z value of +0.5 gives a probability of 0.69, which is interpreted to
mean there is a 69 per cent chance of completing the project on or before 67 time units.
Conversely, the probability of completing the project by time period 60 is computed as follows:
26.0
67.0
36
4
11925
6460
≈
−=
−
=
+++
−
=
P
Z
From Table A14.2, a Z value of –0.67 gives an approximate probability of 0.26, which is
interpreted to mean there is about a 26 per cent chance of completing the project on or before 60
time units. Note that this same type of calculation can be made for any path or segment of a path in
the network.
Table A14.2 Z Values and probabilities

When such probabilities are available to management, trade-off decisions can be made to accept
or reduce the risk associated with a particular project duration. For example, if the project manager
wishes to improve the chances of completing the project by 64 time units, at least two choices are
available. First, management can spend money up front to change conditions that will reduce the
duration of one or more activities on the critical path. A more prudent, second alternative would be
to allocate money to a contingency fund and wait to see how the project is progressing as it is
implemented.
APPENDIX 14.1 EXERCISES
1. Given the project information below, what is the probability of completing the National Holiday
Toy project in 93 time units?
Act.
ID
Description Predece
ssor
Optm
. (a)
Most
likely (m)
Pess.
(b)
Act time te Variance
[(b 2 a)/6]2
Critical
1 Design
package
None 6 12 24
2 Design
product
1 16 19 28
3 Build package 1 4 7 10
4 Secure patent 2 21 30 39
5 Build product 2 17 29 47
6 Paint 3, 4, 5 4 7 10
7 Test market 6 13 16 19
2. The Global Tea and Organic Juice companies have merged.
The following information has been collected for the ‘Consolidation Project.’
Activity Description Predecessor a opt m ml b pess
1 Codify accounts None 16 19 28
2 File articles of unification None 30 30 30
3 Unify price and credit policy None 60 72 90

4 Unify personnel policies None 18 27 30
5 Unify data processing 1 17 29 47
6 Train accounting staff 1 4 7 10
7 Pilot run data processing 5 12 15 18
8 Calculate P&L and balance sheet 6, 7 6 12 24
9 Transfer real property 2 18 27 30
10 Train sales force 3 20 35 50
11 Negotiate with unions 4 40 55 100
12 Determine capital needs 8 11 20 29
13 Explain personnel policies 11 14 23 26
14 Secure line of credit 9, 12 13 16 19
15 End 10, 12, 14 0 0 0
a) Compute the expected time for each activity.
b) Compute the variance for each activity.
c) Compute the expected project duration.
d) What is the probability of completing the project by day 112? Within 116 days?
e) What is the probability of completing ‘Negotiate with Unions’ by day 90?

3. The expected times and variances for the project activities are given below. What is the
probability of completing the project in 25 periods?
Variance
ID
Description Predecessor te [(b 2 a)/6]2
1 Pilot production None 6 3
2 Select channels of distrib. None 7 4
3 Develop mktg. program None 4 2
4 Test market 1 4 2
5 Patent 1 10 5
6 Full production 4 16 10
7 Ad promotion 3 3 2
8 Release 2, 5, 6, 7 2 1

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